A new presidential administration will impact every aspect of the healthcare industry. But we already know what we might expect from a second Trump term.
With the re-election of President Trump, we can draw upon a history of past policies to understand what his administration means for the healthcare industry. This precedent, and the leadership team selections that have already come to light, point to significant disruptions to the current healthcare environment regardless of your political affiliations.
The changes will be felt through the loosening of regulatory challenges, reimbursement adjustments for providers and future investment in the industry. At the same time, we expect private equity (PE) and venture capital (VC) investments will flourish in the healthcare space.
Regulatory impact on M&A
Based on history and campaign promises, the new administration is anticipated to continue focusing on Federal deregulation. This will lower barriers to entry and reduce compliance costs, making it easier for PE firms to invest in healthcare companies. This could lead to an increase in mergers and acquisitions (M&A) as firms seek to capitalize on a more favorable regulatory landscape.
This climate could further polarize the political reaction to private market activity in the healthcare industry, particularly as several states work on their own legislation to limit PE investments in healthcare provider companies. Certain state lawmakers intend to prohibit specific investments, and/or require investment firms to at a minimum notify state authorities and get their approval. These state-based proposals are referred to collectively as “mini-HSR Acts” based upon the federal Hart-Scott-Rodino (HSR) Act requirements.
Consolidation through mergers and acquisitions should decrease operating costs and be accretive in value, but these advantages can come at the cost of end-user price increases due to reduced competition. Reduced oversight might lead to cost-cutting measures that could compromise care. Critics argue that the focus on profitability could overshadow the commitment to patient outcomes, potentially leading to negative consequences for healthcare quality, equity and inclusion. The balance between profitability and patient care will be a critical factor in determining the overall impact of these investments in the healthcare system.
Industry investments
Private equity and venture capital are no strangers to the healthcare sector. PE and VC players seek the promise of high returns with the consolidation of provider types often identified as “fractured.” Fractured sub-niche providers within healthcare are those that are abundant, smaller in size, not yet part of a significant system and struggle to stay competitive with the larger competitors.
Over the past few years, healthcare industry investments slowed, due in part to the rising cost of growth capital. Discussions by the Trump Administration around lower corporate tax rates and favorable trade policies could enhance the profitability of healthcare investments, attracting more capital to the sector.
The potential of new capital in the market would be a welcome change to some PE firms with current healthcare provider investments. The higher cost of capital and slower investments have compelled some PE firms to hold onto investments longer than they historically would, especially with physician practices. Under the second Trump administration, I anticipate PE firms will use new capital entering the market to ramp up dealmaking in the physician practice area.
Impact on the provider and insurers markets
PE firms often inject much-needed capital into healthcare organizations, enabling expansion, investment in greater AI-enabled technology and improvements in operational efficiencies. This can lead to better patient care, more robust healthcare infrastructure and higher profitability. However, the focus on profitability might also lead to the prioritization of high-margin services over essential but less profitable ones.
It’s worth paying close attention to the administration’s stance on healthcare reform, particularly regarding the Affordable Care Act (ACA). The previous Trump administration vowed to repeal the ACA. Although it may not be a top priority of the new administration, any changes to the ACA could impact insurance markets, patient coverage and patient cost. Without further extension of enhanced subsidies, the Congressional Budget Office (CBO) estimates ACA enrollment and related coverage would drop by 3.8 million people.
Conversely, a potential goal of the new administration will be to improve Medicare reimbursement rates. When the election results were known, insurers such as United Health Group and Humana, focused on the Medicare market stock prices jumped on the expectation of those higher rates. Higher Medicare rates will also impact the Medicare Advantage (MA) insurers.
Increased MA rates will reverse the trend of insurers dropping coverage in certain geographies or plans altogether and some providers not agreeing to an MA contract. Greater rates will be a benefit to PE investments, especially in community-based provider markets.
Overall impact on the healthcare industry
Greater PE investments will increase the consolidation of certain healthcare providers, and dealmakers are likely to face fewer regulatory hurdles to do so in the coming years. This could give rise to larger healthcare conglomerates. To better manage those consolidated companies is another reason why PE investment will increase in the tech and tech-enabled AI sector.
With the emphasis on greater profitability, PE firms will focus on more lucrative markets. Unless caution is taken, this could potentially expand healthcare deserts and greater disparities in provider access. Further, different underserved populations could have less choice which may drive down healthcare access and outcomes.
Overall, the impact of private equity investments in healthcare under the new Trump administration is multifaceted. While deregulation and business-friendly policies could stimulate investment and drive innovation, there are significant concerns about the potential negative effects on healthcare quality and access. Policymakers, healthcare providers, and private equity firms must work together to ensure that the benefits of increased investment are realized without compromising the quality and accessibility of care.
Photo by Chip Somodevilla/Getty Images
Ron Present is a partner in Armanino’s Growth Office. He has more than 35 years of experience and is a health care industry expert. He has in-depth knowledge of the operational structure of pre-acute, acute and post-acute health care environments. Ron brings clients hands-on experience as both an industry executive and consultant. His health care expertise includes strategic, financial and operational advisory services; development of narrow and value-based networks; revenue enhancement and strategy implementation; reimbursement and process improvement strategies; HIPAA compliance; feasibility studies; merger and acquisition transactions and implementation; and market assessments. Prior to joining Armanino, Ron was a partner in Brown Smith Wallace’s Advisory practice and served as the Health Care Industry Group leader.
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